Rubio And Rokita's RAISE Act Restores A Little Bit Of Freedom In Labor Relations Law

George Leef
, ContributorI write on the damage big government does, especially to education.Opinions expressed by Forbes Contributors are their own.

Should workers have the freedom to make their own contracts?

Long ago, they did. Back in 1905, the Supreme Court held in Lochner v. New York (which I discussed recently on Forbes) that the state could not dictate to bakery employees how many hours they were allowed to work in a week.

Unfortunately, freedom of contract is one of those rights that “progressives” and collectivists regard as unimportant – one that legislators and bureaucrats can whittle away as long as they claim that doing so somehow advances “the public good.” One of the many federal statutes that interfere with freedom of contract is the National Labor Relations Act.

Under that law, once the government has certified a union because it seems to have majority support, it becomes the exclusive representative of all the employees in the “bargaining unit.” No one is permitted to contract with a different union; nor are workers allowed to negotiate on their own if they think they can do better than the union’s collective agreement. While the language of the statute does not specifically prohibit individual agreements, in a 1944 case, J. I. Case Co. v. NLRB, the Supreme Court held that the NLRB had correctly ruled an employer in violation of the law by dealing individually with some workers and granting them pay increases.

By 1944, the Supreme Court was composed entirely of justices favorable to the New Deal’s socialistic philosophy and the resulting decision (written by Justice Jackson) made it plain that individual rights could be extinguished if politicians thought that doing so advanced the collective good. Justice Jackson wrote that even if deserved, increased individual compensation “is often earned at the cost of breaking down some other standard thought to be for the welfare of the group, and always creates suspicion of being paid at the long range expense of the group as a whole.”

Thus, it is the law that if a unionized employer wants to offer some workers a raise, it cannot do so unless the union agrees. Often, the union will not agree. When some workers get a raise while others don’t, that undermines “solidarity” and could cause support for the union to deteriorate. From the standpoint of union leadership, it’s better to stick with contracts that base raises on seniority rather than on individual achievement.

Laws usually have unforeseen consequences and this is no exception. The inability of unionized firms to properly compensate their most productive workers tends to cause them to leave for non-union firms that aren’t shackled by collective bargaining agreements. Economics professor Brigham Frandsen’s recent paper The Surprising Impacts of Unionization: Evidence from Matched Employer-Employee Datafinds evidence for that common-sense conclusion.

After comparing firms where a union narrowly won certification with firms where it was rejected, he found that average wages in the unionized companies declined by two to four percent compared with those that remained non-union. His explanation for that result is that after unionization, some of the most productive employees leave for greener pastures. Because their replacements are less productive, average wages decline.